Minneapolis Federal Reserve Bank President Neel Kashkari on Thursday suggested that because household finances are in some cases in better shape than before the pandemic, the Fed may end up needing to raise rates further to bring inflation under control.
"Are these stronger balance sheets leading people to spend more, or be more confident, to just change their behavior, their spending patterns, and is that more sustainable - in which case maybe the Fed has to be even more aggressive," Kashkari told the Urban Institute.
The "plausible" hope, Fed Chair Jerome Powell said this week, is that heavier borrowing costs will drag down demand for labor enough to slow wage gains that might otherwise fuel inflation, but not so much that businesses resort to mass layoffs that could trigger a recession. "We know we have to get inflation down; we are doing everything we can to achieve a 'soft landing,' but I'll be honest with you: I don't know the odds of us pulling that off," Kashkari said.
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